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DORRANCE v. U.S.
877 F.Supp.2d 827 (2012)
Bennett and Jacquelynn DORRANCE, Plaintiffs,
v.
UNITED STATES of America, Defendant.
No. CV-09-1284-PHX-GMS.
United States District Court, D. Arizona.
July 9, 2012.
ORDERG. MURRY SNOW, District Judge. Pending before the Court are cross-motions for summary judgment. (Docs. 64, 67). For the reasons stated below, both motions are denied.1 In 1995, Plaintiffs formed the Dorrance 1995 Legacy Trust (the "Trust"), which in turn purchased five life insurance policies in 1996. (Doc. 67-1 ¶¶ 16, 17). The policies were purchased with The Prudential Insurance Company of America ("Prudential"), Sun Life Assurance Company of Canada ("SunLife"), Phoenix Home Life Mutual Insurance Company ("Phoenix"), Principal Life Insurance Company ("Principal"), and Metropolitan Life Insurance Company ("MetLife"). (Doc. 65 ¶ 1). In the aggregate, the policies provided $87,775,000.00 in coverage. (Doc. 67-1 ¶¶ 19-23). The Trust purchased the policies in the anticipation that the benefits would provide liquidity to pay Plaintiffs' estate taxes upon their death, so that Plaintiffs' heirs would not need to liquidate the family stock portfolio to pay such taxes. (Doc. 67-1 ¶ 17). All of the policies were purchased with mutual insurance companies. In a mutual insurance company, the policyholders have an interest in the company itself in addition to holding a policy. This interest provides the policyholder with certain rights, including the right to vote on corporate decisions and the right to receive the mutual company's surplus should the company liquidate. (Doc. 65 ¶ 7; Doc. 67-1 ¶ 6).2 Plaintiffs describe these rights as "ownership" rights, while Defendant describes them as "membership" rights. (Doc. 64 at 2; Doc. 67 at 2). At this stage in the litigation, the Court will refer to these rights as "mutual rights."3 Policyholders cannot sell the mutual rights separately from their underlying policies. (Doc. 65 ¶ 9). If a life insurance policy held with a mutual insurance company is terminated, the mutual rights are extinguished as well. (Doc. 65 ¶ 10). The five mutual life insurance companies demutualized through processes that began in 1998, 1999, and 2000, and culminated in 2000 or 2001. (Doc. 65 ¶¶ 32-38). In the process of demutualization, a mutual company changes its corporate structure into that of a stock company, often through a procedure governed by state statute. (Doc. 67-1 ¶ 39; Doc. 65 ¶ 24). Policyholders must vote to approve a demutualization before the process can proceed. (Doc. 67-1 ¶ 40).4 Prior to seeking policyholder approval, at least one of the companies promised policyholders that if they voted for demutualization, premiums would not increase, and in fact none of the premiums Plaintiffs paid increased after demutualization. (Doc. 65 ¶ 39; Doc. 79-1 ¶ 39).
1. Both parties have requested oral argument. The requests are denied because the parties have had an adequate opportunity to discuss the law and evidence and oral argument will not aid the Court's decision. See Lake at Las Vegas Investors Group, Inc. v. Pac. Malibu Dev., 933 F.2d 724, 729 (9th Cir.1991).
2. The parties dispute the degree to which the mutual rights provided dividends. Insurance policyholders receive dividends, and as the mutual insurance companies demutualized, the companies set aside funds to ensure that these dividends continued. Plaintiffs do not deny that they continued to receive dividends after demutualization, and Defendant does not deny that the dividends come from money set aside into blocks from the companies' surplus, which in some circumstances (such as liquidation) is associated with the mutual right. (Doc. 65 ¶ 23; Doc. 79-1 ¶ 23).
3. The Court notes that another district court, considering whether a policyholder was deprived of property when a mutual company demutualized and did not provide the policyholders any compensation for these rights, found that policyholders' interest in a mutual life insurance company "did not rise to the level of a property interest such as to render policy holders `owners' of the corporation." Tancredi v. Metropolitan Life Ins. Co., 149 F.Supp.2d 80, 86-87 (S.D.N.Y.2001). The decision is not binding on this Court.
4. For example, Arizona, state regulations require that demutualization plans be approved by the state Director of Insurance, permit companies to limit the right to vote on demutualization to policyholders whose policies are worth over $1,000 and have been held more than a year, and provide that policyholders receive equity through "a fair formula approved by the director" that reflects the insurance company's entire surplus. A.R.S. § 20-730.
5. The Gladden court noted that in this "easy case" the facts would have resembled Inaja Land and Plaintiffs urge the court to therefore apply the open transactions doctrine. The Gladden court did not suggest that in cases where the rights had vested the open transaction doctrine always applied, and neither Gladden nor this case present the uncertainty regarding present value that governed Inaja Land.
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